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Alabama Law for You

  • Writer's pictureGregory Stanley

THE CORPORATE TRANSPARENCY ACT APPLIES TO YOUR COA/HOA

Updated: Apr 21




I represent Owners’ Associations and I represent Association members against their Associations. Associations that don’t follow the simple legal requirements laid out in the code lose to the association members who sue them.   I like representing associations, but if it an Association won’t put processes in place to meet legal requirements, I wrap up my counseling and let them know my firm will still do collections for them, but I won’t defend them in a lawsuit. 

The most common way attorneys beat Associations in court is by exploiting the Association’s failure to meet the minimum required corporate formalities.  An association simply cannot create and enforce rules arbitrarily:  Associations must comply with the law or they should plan to lose in court.  And it just got harder for all Alabama Associations to get and stay compliant because the 2021 Corporate Transparency Act that applies to every Alabama owners’ association became effective on 1 January 2024.*[1]

THE ACT HAS BENEFITS AND CHALLENGES

The Act has a lot of benefits for the owners such as increased transparency requirements, it makes it easier to compare your association to other similar corporations, and allows more complete pre-purchase due diligence.  But these same owner/member benefits make it harder for associations to stay compliant including required , including data collection and possible privacy-related liability.  Proper associations with legal counsel won’t have problems…unless the association does not follow the counselor’s guidance.

CORPORATE TRANSPARENCY ACT ASSOCIATION REQUIREMENTS

All corporations including all Alabama owners’ associations must now comply with the previous requirements to have their documents and budget available for the public, but now the must also meet the Financial Crimes Enforcement Network (FinCEN) and Beneficial Ownership Information (BOI) reporting requirements every year at a minimum and provide the legal name, birthdates, home addresses, and state-issued identification number for the declarant or developer, each Board member, and whoever does the association’s books.  Information must be kept current with an update withing 30 days of any changes.  The law doesn’t specifically state this, but it seems apparent that whoever the manager or management company is would fall under this requirement. 

Failure to comply carries a fine of $500 per day and if the failure continues there could be criminal penalties from $10,000 to $250,000 and up to 24 months in prison for offending board members.

GOOD NEWS:  YOU HAVE UNTIL 31 DECEMBER TO FILE

If your association can’t prove they follow basic corporate formalities such as annual state filings, board meetings, and for providing every owner a proposed budget, getting a quorum, and then voting each and every year before a budget is approved, that might be the best place to start.  Once an association can prove these requirements are all being met, then FINCEN reporting would be the next step. 

Starting 1 January 2024 all newly-formed associations must file their reports within 30 days of creation, but existing associations must file their initial registration by December 31, 2024.

Community association associations are using the dues collected from member associations to lobby against the government enforcing the act, citing smoke-filled board room privacy concerns.

 LOOKING AHEAD

Association Board members should start now to amend their bylaws to automatically remove any board member who does not comply with the Corporate Transparency Act.

*There are exceptions for Associations that file annual tax returns with the IRS as a non-profit.

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